Quick Service Restaurants Shows Significant Growth In India Amidst Pandemic

Quick Service Restaurants (QSRs)—fast food outlet where people pay for food at the counter before consumption—have gained a major market share in a significantly shorter period.

In March 2020, the Government of India temporarily closed public places like hotels, restaurants and food outlets as a precautionary measure to curb the spread of the coronavirus.

During such a situation, QSRs turned to the food delivery sector, and several foodservice companies adopted the concept of takeaway services to deliver safe, hygienic and customised orders to the customers—which helped them to sustain and continue the business.

Now, according to Kotak Institutional report: "We expect India's organised food services market to grow at about 10.5 per cent CAGR to $37 billion over FY2020-25E, garnering 46 per cent market share from 40 per cent at present."

"Our bottom-up analysis of the market opportunity for western across 541 districts in India indicates potential for over 50 per cent store growth by FY2025E," added the report.

However, western QSRs would grow over 50 per cent between 2021 and 2025.

If the lower level of penetration is considered, the growth opportunities for the QSRs are even higher.

In the food services market, their share is low at 3 to 4 per cent, while compared to over 15 to 20 per cent in developed markets.

Keeping the Covid-19 pandemic aside, other changes have been noticed in the food industry—the food aggregators have reduced the discounts and increased the delivery fees.

Over the past 3 to 5 years, cloud or ghost kitchens—a delivery-only restaurant that has no physical space for dine-in—have granted higher capital on expansion without building the unit-level economy, which is the calculation of profit or loss for a particular business model on a per-unit basis.

Such food facilities are likely to have run out of fresh capital.

There is a possibility that cloud kitchens would struggle in the absence of these incentives to drive volumes.

But in the case of QSRs, these have strong access to capital that would be helpful to strengthen their position and expand their footprint in the home delivery market.

In addition, the report has suggested that the top five QSRs in India would add more than 2,200 stores between 2021 and 2025.

As these QSRs have shut down non-performing stores and increased the price gaps between in-store and online menus while minimising their cost structure to the possible extent, all these will be added to the profitability and return ratios.

According to recent reports, the food services company Jubilant FoodWorks Ltd (JFL), which runs Domino's Pizza and Dunkin Donuts, plans to set up over 110 Domino's stores in FY21.

The Money Control reported that McDonald's could open 110-120 stores in Southern or Western India over FY2021-25E, while Burger King has the potential to double its store counts over the same period, noted the Kotak report.